How often do you update your tax code?
Discussion
Despite having the highest base salary I've ever had, I'm clearing less per month than I ever have at this job. I've been on the phone to HMRC and it sounds like I'm paying back a big chunk of underpaid tax from a previous year.
My job involves quarterly commission on top of base salary, obviously based on how well you do that quarter the commission can be as expected, higher or lower. Am I right in thinking I should update my projected annual earnings every quarter once I know exactly what my commission figure is? For example, my Q2 commission is well below where it would be had I hit target, so I asked the man on the phone to adjust my projected earnings this year down a bit, so a new code will be issued and I'll pay a bit less tax next month.
BUT if I have a storming Q3 I'll then have to put my annual projection up a fair bit and could suddenly owe tax again?
Trying to work out how best to do this so that I'm taking home what I should be taking and not overpaying but equally underpaying.
My job involves quarterly commission on top of base salary, obviously based on how well you do that quarter the commission can be as expected, higher or lower. Am I right in thinking I should update my projected annual earnings every quarter once I know exactly what my commission figure is? For example, my Q2 commission is well below where it would be had I hit target, so I asked the man on the phone to adjust my projected earnings this year down a bit, so a new code will be issued and I'll pay a bit less tax next month.
BUT if I have a storming Q3 I'll then have to put my annual projection up a fair bit and could suddenly owe tax again?
Trying to work out how best to do this so that I'm taking home what I should be taking and not overpaying but equally underpaying.
Tax Codes collapse when they are trying to cope with someone who has an extremely variable salary which takes them in and out of various tax bands and/or above annual thresholds for allowance withdrawals.
The system does not cope with situations like this.
My advice would normally have been to elect to get onto Self Assessment and, rather than HMRC further complicate your already messy Tax Codings with adjustments which try to recover under or over payments in earlier years, you could physically pay the additional tax due under the self assessment system (or claim a refund if overpaid).
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
The system does not cope with situations like this.
My advice would normally have been to elect to get onto Self Assessment and, rather than HMRC further complicate your already messy Tax Codings with adjustments which try to recover under or over payments in earlier years, you could physically pay the additional tax due under the self assessment system (or claim a refund if overpaid).
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
I’ve never bothered. My tax code has never been correct. When I worked, I used to owe HMRC a small fortune at the end of the tax year. Since I retired, they invariably owe me a small amount.
If you get into the habit of filing a tax return every year you’ll always square up so the tax code is irrelevant for all practical purposes unless you need to micro-manage cash flow.
If you get into the habit of filing a tax return every year you’ll always square up so the tax code is irrelevant for all practical purposes unless you need to micro-manage cash flow.
Eric Mc said:
Tax Codes collapse when they are trying to cope with someone who has an extremely variable salary which takes them in and out of various tax bands and/or above annual thresholds for allowance withdrawals.
The system does not cope with situations like this.
My advice would normally have been to elect to get onto Self Assessment and, rather than HMRC further complicate your already messy Tax Codings with adjustments which try to recover under or over payments in earlier years, you could physically pay the additional tax due under the self assessment system (or claim a refund if overpaid).
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
Thanks for the response. I have done a self assessment for the last couple of years as I went over the earnings threshold that required it, but I fear this is when everything actually started going tits up! The system does not cope with situations like this.
My advice would normally have been to elect to get onto Self Assessment and, rather than HMRC further complicate your already messy Tax Codings with adjustments which try to recover under or over payments in earlier years, you could physically pay the additional tax due under the self assessment system (or claim a refund if overpaid).
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
I'm going to get back on the phone next week and try and work out why they seem to think I underpaid so much tax. I just had a chat with my brother (not a taxman) and it really does not look like I should be £1k down per month all year based on the last 3 year's employment, so something doesn't look right.
Hopefully I'm owed something, maybe another 40 mins on the phone to HMRC can finally get to the bottom of it.
UTH said:
Thanks for the response. I have done a self assessment for the last couple of years as I went over the earnings threshold that required it, but I fear this is when everything actually started going tits up!
I'm going to get back on the phone next week and try and work out why they seem to think I underpaid so much tax. I just had a chat with my brother (not a taxman) and it really does not look like I should be £1k down per month all year based on the last 3 year's employment, so something doesn't look right.
Hopefully I'm owed something, maybe another 40 mins on the phone to HMRC can finally get to the bottom of it.
Sounds like you might have ticked the box to roll over/underpayments into the next years tax code. That’ll always get messy.I'm going to get back on the phone next week and try and work out why they seem to think I underpaid so much tax. I just had a chat with my brother (not a taxman) and it really does not look like I should be £1k down per month all year based on the last 3 year's employment, so something doesn't look right.
Hopefully I'm owed something, maybe another 40 mins on the phone to HMRC can finally get to the bottom of it.
anonymous said:
[redacted]
No I did it blindly myself, I have no doubt I made a mistake or didn’t put all the right info in as it was totally new to me and seems to have screwed me since I first did one. Hopefully some more time on the phone with my P60s and my previous returns in front of my may get to the bottom of it.
Eric Mc said:
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
Jeez that looks like it’ll be painful.I’m not quite sure why they can’t just offer their own software, or leave the online filing in place as is…
If the new system is then better, by definition, the old system would be unused and could be closed.
Just had a cursory look around. £250 to run software to file my accounts?
And yet the software IO is just dumping an appropriately formatted file via your login creds…
Tempted to just write a parser for an appropriately formatted libre office calc sheet that’ll then dump a file you can just upload.
Utterly amazingly cretinous.
Well I currently dump all my stuff in a spreadsheet.
I have a few numbers at the end of columns.
I put these in SA website. Press ok. Pay money.
Or accountant has done.
Now I need to buy (or pay to use each time!!!) software and let them see all my private data, to let them pass about 10-15 numeric values to HMRC?
Hmmmm.
I have a few numbers at the end of columns.
I put these in SA website. Press ok. Pay money.
Or accountant has done.
Now I need to buy (or pay to use each time!!!) software and let them see all my private data, to let them pass about 10-15 numeric values to HMRC?
Hmmmm.
If you are just PAYE i cannot fathom the need for an accountant. Its really fairly straight-forward if you don't have BTLs, offshore trusts and other complicating factors it is the work of maybe a Sunday afternoon mid May after your P11D/P60 lands.
Like the OP, I am in sales and have a quarterly commission element to my salary, i also get RSUs by way of loyalty payments on a quarterly basis but these all appear as income. for 21/22 i had bit of a kerfuffle because while i started a new role on April 6 2021 my old employer continued to pay me compensation cheques monthly through too Aug 21. This was compounded an employer from 2009 who went out of business finally delivering a post administration cheque in July. So for a month last year i appeared to have 3 sources of income.....BUT...all were recorded and pre-populated in the portal and all i needed to do was validate.
Saying that my tax code has changed twice in the last fortnight as HMRC realise they may have taken too much NI and are adjusting my code to allow a back payment over the next few months.
Like the OP, I am in sales and have a quarterly commission element to my salary, i also get RSUs by way of loyalty payments on a quarterly basis but these all appear as income. for 21/22 i had bit of a kerfuffle because while i started a new role on April 6 2021 my old employer continued to pay me compensation cheques monthly through too Aug 21. This was compounded an employer from 2009 who went out of business finally delivering a post administration cheque in July. So for a month last year i appeared to have 3 sources of income.....BUT...all were recorded and pre-populated in the portal and all i needed to do was validate.
Saying that my tax code has changed twice in the last fortnight as HMRC realise they may have taken too much NI and are adjusting my code to allow a back payment over the next few months.
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
Eric , I've just had a quick google post your words above and the only mention I can find of changes under MTD is that filing for business owners including landlords will indeed change to require quarterly updates to HMRC.
As such will self assessment remain for individuals and if not what is going to replace it ?
MTD itsa, so basically self assessment but via 3rd party software.
Great if you want full accounting and MTD software to do it all for you for £30 a month.
Not so great if you just want to push about 10 key business variables every quarter, to which there seems to be no simple solution.
I can see this being delayed, scrapped, changed, or some lightweight free HMRC software arriving that’ll just do the basic table inputs which online SA used to do.
I’ve no idea what the quarterly things are all about… likely to roll out actual quarterly tax payments as the quarters end… and maybe phase out “payments on account”, or payments for a given tax year about 9 months after it ends.
A one-hit boost to tax revenue, and then perpetual tweaks every year which necessitate the MTD software makers to perpetually change software, meaning it’ll never be cheap to buy/use… or worse still, no free software will ever appear.
Great if you want full accounting and MTD software to do it all for you for £30 a month.
Not so great if you just want to push about 10 key business variables every quarter, to which there seems to be no simple solution.
I can see this being delayed, scrapped, changed, or some lightweight free HMRC software arriving that’ll just do the basic table inputs which online SA used to do.
I’ve no idea what the quarterly things are all about… likely to roll out actual quarterly tax payments as the quarters end… and maybe phase out “payments on account”, or payments for a given tax year about 9 months after it ends.
A one-hit boost to tax revenue, and then perpetual tweaks every year which necessitate the MTD software makers to perpetually change software, meaning it’ll never be cheap to buy/use… or worse still, no free software will ever appear.
alscar said:
However, self assessment is being abolished for most people in April 2024 so that route is being closed by HMRC.
Eric , I've just had a quick google post your words above and the only mention I can find of changes under MTD is that filing for business owners including landlords will indeed change to require quarterly updates to HMRC.
As such will self assessment remain for individuals and if not what is going to replace it ?
Self Assessment was mainly brought in to allow those who had sources of income which were not taxed at source (sole traders/landlords/capital gains etc) to be able to submit their income details to HMRC in a "one stop shop" format. Don't forget, we had tax returns before Self Assessment was invented (1994/95) but the old tax return system had grown up organically over almost 200 years and it was quite messy and inconsistent with different rules regarding time limits for submission, appeals procedures, tax payments etc. Self Assessment was an attempt to streamline the submission of "non taxed at source" income and the related payment dates.Eric , I've just had a quick google post your words above and the only mention I can find of changes under MTD is that filing for business owners including landlords will indeed change to require quarterly updates to HMRC.
As such will self assessment remain for individuals and if not what is going to replace it ?
However, in the years since 1994/95, Self Assessment has expanded to include lots of people who ARE mainly taxed at source but who may have complex aspects to their income - a lot of this complexity has been caused by successive governments since 1995 making so many changes to the tax system that what should have been simple is now very complex and the "at source" systems can no longer be relied on to calculate and deduct the correct amounts of tax each year.
It would be REALLY ironic if Self Assessment was retained for these complex "taxed at source" individuals whilst the sole traders, landlords and partners were moved onto the new quarterly MTD system.
When self assessment finally goes, taxpayers will be expected to monitor their situation by referring to their on-line tax account with HMRC. There should, in theory, be the possibility of making necessary changes during the tax year so that the tax being deducted at source is correct. This will require tax payers to be far more aware of their duties under tax law and not work under the assumption that it is their employer's or HMRC's duty to get things right.
Thanks for the further explanations Eric and Mr Whippy.
As recently retired ( so no longer PAYE ) but different income sources all sounds like a perfectly good way to create a non workable solution out of a problem that isn't necessarily there - I think I'll just keep on paying an Accountant if ( or when ) the changes actually occur.
As recently retired ( so no longer PAYE ) but different income sources all sounds like a perfectly good way to create a non workable solution out of a problem that isn't necessarily there - I think I'll just keep on paying an Accountant if ( or when ) the changes actually occur.
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